Revenues generated by a new fad product are forecast as follows: Revenues $5e, eee 35,eee 30, eee 20,eee Year 1 2 Thereafter Expenses are expected to be 40% of revenues, and working capital required in each year is expected to be 20% of revenues in the following year. The product requires an immediate investment of $60.000 in plant and equipment. Required: a. What is the initial investment in the product? Remember working capital. b. If the plant and equipment are depreciated over 4 years to a salvage value of zero using straight-line depreciation, and the firm's tax rate is 20%, what are the project cash flows in each year? Assume the plant and equipment are worthless at the end of 4 years. c. If the opportunity cost of capital is 10%, what is the project's NPV? d. What is project IRR? Complete this question by entering your answers in the tabs below. Reg C and D Reg A Req B c. If the opportunity cost of capital is 10%, what is the project's NPV? (A negative value should be indicated by a minus sign. Do not round intermediate calculations. Round your answer to 2 decimal places.) d. What is project IRR? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.) Show less a C. NPV 29.900.33 d. IRR 12.27 % ( Req B Reg Cand D>
Revenues generated by a new fad product are forecast as follows: Revenues $5e, eee 35,eee 30, eee 20,eee Year 1 2 Thereafter Expenses are expected to be 40% of revenues, and working capital required in each year is expected to be 20% of revenues in the following year. The product requires an immediate investment of $60.000 in plant and equipment. Required: a. What is the initial investment in the product? Remember working capital. b. If the plant and equipment are depreciated over 4 years to a salvage value of zero using straight-line depreciation, and the firm's tax rate is 20%, what are the project cash flows in each year? Assume the plant and equipment are worthless at the end of 4 years. c. If the opportunity cost of capital is 10%, what is the project's NPV? d. What is project IRR? Complete this question by entering your answers in the tabs below. Reg C and D Reg A Req B c. If the opportunity cost of capital is 10%, what is the project's NPV? (A negative value should be indicated by a minus sign. Do not round intermediate calculations. Round your answer to 2 decimal places.) d. What is project IRR? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.) Show less a C. NPV 29.900.33 d. IRR 12.27 % ( Req B Reg Cand D>
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Transcribed Image Text:Revenues generated by a new fad product are forecast as follows:
Revenues
$5e, eee
35,eee
30, eee
20,eee
Year
1
2
Thereafter
Expenses are expected to be 40% of revenues, and working capital required in each year is expected to be 20% of revenues in the
following year. The product requires an immediate investment of $60.000 in plant and equipment.
Required:
a. What is the initial investment in the product? Remember working capital.
b. If the plant and equipment are depreciated over 4 years to a salvage value of zero using straight-line depreciation, and the firm's tax
rate is 20%, what are the project cash flows in each year? Assume the plant and equipment are worthless at the end of 4 years.
c. If the opportunity cost of capital is 10%, what is the project's NPV?
d. What is project IRR?
Complete this question by entering your answers in the tabs below.
Reg C and D
Reg A
Req B
c. If the opportunity cost of capital is 10%, what is the project's NPV? (A negative value should be indicated by a minus sign.
Do not round intermediate calculations. Round your answer to 2 decimal places.)
d. What is project IRR? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal
places.)
Show less a
C.
NPV
29.900.33
d.
IRR
12.27 %
( Req B
Reg Cand D>
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